Political Change Versus Law Reform Continuity: Japanese Law After Three Years of Enthusiasm and Disillusionment

The 10th Asian Law Institute (ASLI) conference will take place in Bangalore at the National Law School of India University (NLSIU) over 23-24 May 2013. The following is an accepted panel proposal drafted primarily by Dr Dan Puchniak, ANJeL-in-ASEAN Convenor (NUS):
In autumn 2009, the progressive coalition led by the Democratic Party of Japan (DPJ) achieved a historic victory in the general election and came to power, expelling the Liberal Democratic Party (LDP), which had been in power continuously since its establishment in 1955 (except for a very brief break in the early 1990s). The new DPJ-led coalition intended to make the policy-making process more transparent and more strongly controlled by politicians, as well as to make the policy orientation of the Japanese government more progressive. After three years, the polls showed significant discontent among the public with the DPJ’s achievements, and power reverted to the LDP in the December 2012 general election.
It is timely for legal academics to examine whether, and in which sense, the DPJ-government affected law reform over the last three years. In this context, Nottage and Kozuka will explain how—perhaps, quite unexpectedly—the historic political turnover in Japan (“macro-politics”) has had a limited influence on important reforms that are taking place in the field of Japanese contract law. In contrast, however, the process of contract law reform has been substantially influenced by the politicking of lawyers and professional bureaucrats (“micro-politics”) who have a personal stake in the reform process. Ultimately, based on this experience, Nottage and Kozuka suggest that micro-politics is more important than macro-politics in Japan’s legal reform process.
Matsunaka will continue the discussion of politics and legal reform by analyzing the new round of corporate law reform, which was initially driven by the strong policy agendas of several DPJ members. As the corporate law reform deliberations progressed, however, the debates increasingly became dominated by elite academics and MOJ officials and, ultimately, the reforms now appear to reflect little, if any, of the DPJ’s core values. Matsunaka’s analysis of this “watering-down” of the DPJ’s policy based reforms provides an interesting perspective on Japan’s legal reform process and contributes to the broad literature on the politics of corporate governance law reform.
Kozuka will then extend on Matsunaka’s analysis by examining Japan’s recent reform of its broadcasting regulation, which was one of the most important agendas for the DPJ when it first came to power. Again, Kozuka’s findings suggest that the more extreme policy based positions of the DPJ gradually faded in the process of law reform, with the final result being more technical and modest deregulatory reforms in the new Broadcasting Law of 2010.
Puchniak will conclude the discussion by examining the recent introduction of the business judgment rule into Japanese corporate law. At least based on conventional wisdom, the fact that the business judgment rule—which is of critical importance in corporate law—was introduced into Japanese law purely through judicial precedent (without any mention of it in Japan’s codified/statutory corporate law) is astounding. Puchniak’s analysis of this unanticipated source of law reform in the DPJ era will shine a light on a substantial blind-spot in both the current understanding of Japanese legal reform and the more general comparative corporate law literature.
In sum, these four presentations offer a good opportunity to discuss the relationship between the political process and law reform, policy choice through the judiciary and the determinants of the role of law in a post-industrial society in Asia.

1. “Strange Bedfellows: The Japanese Judiciary and Corporate Law Reform” (Dr Dan Puchniak)
Conventional wisdom would not lead one to suspect a love affair between the Japanese judiciary and corporate law reform. After all, we have been regaled by stories from preeminent scholars about the extremely conservative nature of Japanese judges who find themselves systematically punished for even a hint of judicial activism. We have been captivated by a watershed comparative corporate law theory which suggests that (universally) statutory/codified corporate law is of the utmost importance, while judicial enforcement of corporate law is of little consequence. We have embraced a taxonomy of the common law and civil law legal traditions that highlights the critical role of judicial decisions in the former and their supplementary role in the latter. Based on such conventional wisdom, it seems implausible that one of the most important legal doctrines in corporate law, the business judgment rule, would make its way into Japanese law through judicial precedent—without a hint of the rule in any of Japan’s codified/statutory law. In 2010, however, the implausible became reality. This paper will explore whether this recent act of “judicial corporate law reform” is an aberration or the norm, unpack the implications of it on Japan’s corporate law regime and explain how this example unveils a substantial blind spot in the current understanding of comparative corporate law scholarship.

2. “Policy and Politics in Contract Law Reform in Japan”
(Profs Souichirou Kozuka and Luke Nottage)
Contract law reform in Japan started as an academic project in 2006 and has been officially on the law reform agenda at the Legislative Council of the Ministry of Justice (MOJ) since October 2009. Despite the historic political turnover in September 2009, the principles of the private draft revisions derived from the lengthy academic project on contact law seem to have remained unchanged. Apparently, contract law is too technical an agenda for political initiative to exert significant influence over. On the other hand, among legal professionals there has been much politicking over the contract law reform process. Experienced lawyers in practice—especially in small law firms—have opposed changing the contract law rules that they are familiar with, while professional bureaucrats at the MOJ have tried to produce some fruits of reform after many years of deliberations. Thus, this paper will suggest that contract law reform is largely unaffected by macro-politics but is quite strongly influenced by micro-politics. Our paper explores this tension in the context of other law reform initiatives in Japan as well as abroad.

3. “Protecting Broadcasting Regulation from Political Interference or Victory for Bureaucratic Resistance?”
(Prof Souichirou Kozuka)
The reform of broadcasting regulation has been debated in Japan since the mid-2000s, when the Koizumi government showed a strong orientation towards utilizing free-market forces as a mechanism for reform. The argument at that time was that the Japanese media was overly protected by regulatory barriers from new entrants and that such a lack of free-market discipline would eventually result in Japanese media industry becoming obsolete—especially in today’s globalized rapidly changing world of digital technology. A few years after the Koizumi reform initiative started, the Democratic Party of Japan (DPJ) came to power and began deliberating over changes to Japan’s broadcasting regulatory regime based on a completely different set of policy considerations. The core policy consideration driving the DPJ’s agenda was that the Japanese media is too closed and tends to prevent disclosure of information that the bureaucrats wish to conceal. The DPJ government first forum to advance its agenda failed to reach a consensus. By the time the next round of deliberations commenced, however, the more extreme views of the DPJ’s agenda had faded, and as a result the amendments to the Broadcasting Act in 2010 only introduced modest deregulation. Considering that the independence of the media and freedom of speech are core values in a democratic society, one may applaud the fact that the DPJ’s initially proposed excessive political interference into broadcasting was rejected. On the other hand, one may view the rejection of dramatic reform as demonstrating the success of existing media interests in protecting a “closed club”, foregoing the opportunity to reshape the Japanese media to match the needs of the digital society. This paper will explore these competing views while attempting to illuminate the best path forward for broadcast regulation in Japan and abroad.

4. “The Politics of Corporate Governance Reform: Influences of the DPJ Government on and the Political Mechanism Behind Japan’s Recent Corporate Law Reform”
(A/Prof Manabu Matsunaka, Nagoya University)
In 2009, after the DPJ took power, a new round of the corporate law reform emerged which was driven by several DPJ members and, initially, heavily influenced by the labour sector. As the reform deliberations progressed, however, the debates increasingly became dominated by elite academics and MOJ officials (who were mostly judges on secondment). The resulting proposal, which will (probably) be drafted into a bill and submitted to the Diet by the new government, addresses many important issues neglected in 2007; but reflects little, if any, of the DPJ-led coalition’s core policies. On the other hand, the proposal does include some positive pro-shareholder protections—although many of these reforms have been watered-down as a result of legislative compromise. This paper will investigate the political mechanism behind this critically important rulemaking process which may have significant implications for the future of Japanese corporate law and governance. It will also highlight an emerging discussion in the political science literature on the politics of corporate governance.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.